NET(net), Inc.


Contracts as Business Tools by jigordon
February 10, 2009, 9:32 pm
Filed under: contract format, law

Douglas Gries over at Dymond Reagor Colville wrote an excellent piece on his blog about using contracts as value added business tools.  I couldn’t agree more.

I joke a lot about contracts being for the divorce, not the marriage.  But the reason that this joke is accurate is that the contract is (supposedly) the best piece of material you have to review when a relationship starts to go bad.  The contract represents the world as the lovers saw it at the beginning of the relationship – full of possibility and promise, and perhaps a little bit of caution, too.  Because of this, it’s a great document to review when you’re trying to repair damage and correct behaviors.

Unfortunately, too many agreements aren’t written in a way that actually gets at the intent of the parties.  Instead, they’re filled with lots of appropriate terms and conditions – legal phrases and jargon.  Which is fine, but when you’re trying to reconstruct each parties’ intent, falls flat.

In the old days, this was resolved with a lot of “Whereas, Now Therefore” clauses at the beginning of the agreement.  You would use the Whereas statements to highlight the background of the relationship and the Now Therefore to indicate that the contract was the resulting action of the Whereases.  But I think even well-crafted Whereas statements don’t get to the real heart of the matter.

So sometimes, I’ll try something a little different.  A “Purpose” statement.  Near the top.  Right under the introduction about who the parties are, but before Section 1.  The purpose is to lay out what is happening and why the contract is being signed.  It can be as simple as “The parties are creating this agreement to provide the base terms and conditions for the vendor to provide service to the client.”  or it can be super-specific: “The vendor is going to provide xx software to accomplish yy tasks along with zz support/training/installation services, as more fully described herein and in any attached SOWs.”

This type of purpose statement helps a subsequent reviewer (the divorce attorney, if you will), figure out some of the initial intentions and what a particular contract is trying to do.  Sounds silly, perhaps, but I just reviewed a few dozen contracts in the last few days – and not one of them told me what the product or service was.  Which meant that I had to try to figure it out based on what I knew the vendor offered – or based on clues left throughout the agreement.  Not easy and not fun.  But it made the review more challenging because I needed to know the scope of the offering before I knew what things to potentially look for or add to each agreement to cover the associated risks.

Oh, and if you think that cover sheets, memos or other documentation created at the time the contract is negotiated will explain it – well, perhaps it will.  But you’ve got two problems with it:  1) it almost never makes its way with the contract; and 2) you can’t rely on it from an evidentiary perspective (we’re going to avoid the conversation about parol evidence here, but you might be interested to learn more).

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